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Globalization Chapter No # 02 Globalization “ It refers to the shift towards a more integrated and interdependent world economy” “As if the entire world (or major regions of it) were a single entity; [such an organization] sells the same things in the same way everywhere” Globalization Because of globalization, for the first time in history, the availability of international products and services can be accessed by individuals in many countries, from diverse economic backgrounds. Two Types of Globalization Globalization of Markets Globalization of Production Globalization of Markets There is a movement towards a globalization of markets, as the tastes and preferences of consumers in different nations are beginning to converge upon some global norm Globalization of Production There is a movement towards a globalization of production, as firms disperse parts of their production processes to different locations around the globe to take advantage of national differences in the cost and quality of factors of production. Drivers of globalization: Decline of barriers to trade and investment Technological change Globalization Forces Political forces Reduction of barriers to trade and foreign investment by governments Privatization of former communist nations Technological forces Advances in computers and communications technology Internet and network computing Globalization Forces , cont’d. Market forces Globalizing companies become global customers Cost forces Goal for economies of scale to reduce unit costs Competitive forces Increase in intensity due to explosive growth in international business Explosive Growth Foreign Direct Investment and Exporting FDI - Direct investment in equipment, structures, and organizations in a foreign country Exporting – transportation of any domestic good/service to a destination outside a country or region Explosive Growth Foreign Direct Investment and Exporting FDI - Direct investment in equipment, structures, and organizations in a foreign country Exporting – transportation of any domestic good/service to a destination outside a country or region Globalization: Countervailing forces Globally Standardized versus Nationally Responsive Practices Country versus Company Competitiveness Sovereign versus Cross-National Relationships Ethical dilemmas and social responsibility The Globalization debate: prosperity or impoverishment? Globalization stimulates economic growth, raises the incomes of consumers, and helps to create jobs in all countries that choose to participate in the global economy. “sweatshop” jobs, increases pollution, and draws people from the countryside into ever more crowded cities and slums, loss of good paying jobs to low wage countries. Advantages and challenges of globalization Productivity Consumers Employment The Environment: Monetary and Fiscal Conditions: Sovereignty Productivity Productivity is improved by producing in countries where production is most efficient. However, this often means workers in one country lose jobs as their work moves to more efficient locations. Consumers Consumers benefit from a wider array of competitively priced goods. However, they have less control over supplies coming from abroad than over goods produced domestically Employment Employment may increase as economic growth and specialization take hold. However, domestic employment fluctuates according to foreign conditions (such as economic crises elsewhere that reduce demand for domestically produced goods). The Environment: As global consumption increases due to globalization, more natural resources deplete. Differing environmental standards across countries create opportunities for businesses to exploit resources in countries with the least amount of environmental protection regulation Monetary and Fiscal Conditions As money moves more freely, it is better able to seek out the best investment opportunities on a global scale. However, governments have less control over the inflow and outflow of funds. Furthermore, capital seems to be flowing more freely to countries with lower tax rates and less regulatory restrictions, putting additional pressures on national fiscal and monetary policies Sovereignty Globalization may undermine national sovereignty in two ways: First, contact with other countries creates more cultural borrowing and may dilute a country's cultural uniqueness. Second, countries are concerned that important decisions may be made abroad by foreign owners of domestically located firms.
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